Powerscourt

By Powerscourt on 17/07/2020

Powerscourt Coronavirus Briefing – 17 July 2020

ANALYSIS

It isn’t just physical and economic wellbeing that is suffering during the coronavirus misery. According to Bloomberg, it is also making a lot of Americans miserable. According to analysis of the US Household Census Pulse Survey, a majority of Americans in the largest metro areas felt “down, depressed or hopeless” last week. Cities with good weather seemed most forlorn with Phoenix (59.9%), Los Angeles (61.1%) and Miami (61.3%) top for misery.

A plethora of economic data seems to confirm plenty of reasons not to be cheerful. Reuters on Friday said a range of indices tracking economic growth, from the Federal Reserve to a number of retail footfall trackers, suggested growth had stalled in recent weeks. 

The data comes as the daily growth in cases in the US continues with Thursday’s total topping 77,000. Nearly 3.6 million Americans have now been infected. In a sign that business now believes that an aggressive approach to tackling the virus may be in its self-interest, Wal-Mart and other large retailers have now said they will require customers to wear masks.

In the UK the starting gun has now officially been fired on the coronavirus blame game. Prime Minister Boris Johnson earlier this week announced an enquiry into the government’s handling in the crisis and then, in time-honoured fashion, kicked this into the long grass, refusing to be pinned down on the format and timing.

Yesterday Sir Patrick Vallance, the government’s chief scientific advisor and the man whose name initially – and probably unfairly – became synonymous with the controversial “herd immunity” concept, robustly kicked it back onto the agenda.

Sir Patrick told a Commons science committee the outcome for coronavirus “has not been good in the UK”. He also poured cold water on one of Boris Johnson’s key current objectives, getting the UK public back to work, saying that working from home should be allowed to take place for as long as it remained possible. The government is on Friday set to announce a £3 billion cash injection into the NHS to protect against a potential second surge in coronavirus cases during the winter, and the Prime Minister is reported to be very keen to get people back into their places of work, as much for the optics as the economic need.

One of the standout commercial winners of the coronavirus crisis has been streaming service Netflix, with people locked in their homes embracing digital content. Quarterly results posted on Thursday suggested the explosive growth seen during lockdown may be flattening as the world opens up. Netflix posted another strong quarterly gain in subscribers but said growth in acquiring new subscribers had undershot that in the first quarter. Netflix’s shares traded down almost 10%.

British Airways, like most airlines, has not had a good crisis. On Friday the airline announced that it would retire its entire fleet of 747 jumbo jets four years ahead of schedule, due to coronavirus-imposed travel restrictions.

 

WHAT ARE COMPANIES SAYING?

 

Consumer & Retail 

DCC
The leading international sales, marketing and support services group, issued a Interim Management Statement and said since their last update in May the trading performance of the Group has “continued to improve in the seasonally less significant first quarter” and results were ahead of group expectations. Operating profit in DCC LPG was behind the prior year due to weakness in commercial and industrial volumes, particularly in Britain and Ireland. However, DCC Retail & Oil performed well in the quarter, driven by good performances from both the British and Danish businesses due to strong demand from agricultural customers and very strong demand in the domestic sector, where customers sought to secure supply during the uncertain lockdown period. Operating profit in DCC Technology was behind the prior year, whilst DCC Healthcare performed strongly during the quarter, with operating profit well ahead of the prior year. 

HomeServe
The international home repairs and improvements business published an AGM trading update this morning. In HomeServe’s Membership businesses, it said policy renewal and mid-term cancellation rates have continued in line with trends in this traditionally quieter period, with no impact from the COVID-19 pandemic. Customer acquisition marketing has now resumed, with initial small-scale campaigns producing better results than expected, notably in the UK and North America. In Home Experts, consumer demand for home improvements has recovered strongly across all businesses. Call traffic is at record highs at eLocal, while Checkatrade had its largest ever number of consumer web visits in June at 2.76m (June 2019: 1.74m). 

Netflix
Netflix added 10.1 million subscribers in the three months to the end of June, beating Wall Street expectations and bringing its paid subscriber base to 193 million. However, Netflix warned that subscriber growth would slow in the third quarter and that it expected to add only 2.5 million paying subscribers, half the 5.1 million forecast by analysts. Netflix shares fell 10pc after the company revealed that the record growth the streaming giant has seen during the pandemic will not last.

 

Industrials & Transport 

Rio Tinto
The Anglo-Australian miner said it had delivered a strong performance, particularly in iron ore and bauxite. In China, conditions have improved through the second quarter and appear to be stabilising, with continuing demand for iron ore. Meanwhile, the Company said the recovery in Japan and Europe is yet to begin meaningfully and is likely to be subdued when it does. Of note, the automotive sector is showing initial signs of recovery from a very low base, supporting demand for aluminium value-added products.

British Airways
British Airways has announced it will bring forward the retirement of its entire 747 fleet because of the coronavirus pandemic with immediate effect. The airline said it made the decision with “great sadness” and it was “unlikely our magnificent ‘queen of the skies’ will ever operate again” due to the collapsing travel industry. Whilst the retirement is upsetting for flying enthusiasts, it makes perfect sense for BA, which will operate its schedule on more modern, fuel efficient aircraft.

 

Financials & Real Estates

Herald Investment Trust
The Trust said it was “gratifying” to be able to report an appreciation of 7.6% in the net asset value per share during the first half of 2020 in such a challenging market environment. The Company’s overseas investment portfolios contributed positively while the UK portfolio experienced a small negative return.

 

IN THE NEWS

Johnson suffers ‘back to work’ blow from chief scientist Financial Times

Coronavirus: Third of Rishi Sunak’s £30bn was ‘old money passed off as new’The Times

Euphoric European Markets Look to Leaders for a Deal on Recovery Bloomberg




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